Worth at least 2 Euro cents Rich!

So true. Take the 3.5% yield on a ten year, take off tax and then inflation and see how much you have left….negative income ….and the possibility of capital loss if the yield does start moving up and you want to sell.

However, if the whole economy extends the recession right though the second half of 08, I suppose there is a chance that fright will drive big investors temporarily again into Treasuries (double dip)and inflation is so far relatively quiescent as suppliers absorb high input inflation in the face of wakening demand.

The big threat comes when recovery does start. Inflation will probably rise and investors will be out of those ten year bonds chasing opportunities; carpet bag style.

Worth at least 2 Euro cents Rich!

So true. Take the 3.5% yield on a ten year, take off tax and then inflation and see how much you have left….negative income ….and the possibility of capital loss if the yield does start moving up and you want to sell.

However, if the whole economy extends the recession right though the second half of 08, I suppose there is a chance that fright will drive big investors temporarily again into Treasuries (double dip)and inflation is so far relatively quiescent as suppliers absorb high input inflation in the face of wakening demand.

The big threat comes when recovery does start. Inflation will probably rise and investors will be out of those ten year bonds chasing opportunities; carpet bag style.

Spot on.

A different way to say the same thing is that fixed rate mortages, along with bonds, track inflation expectations and the opportunity cost of the same investment.

Since everything looks bad right now, the opportunity cost of bonds is low. Since inflation is (reportedly) low, bonds are cheap.

Yep. When bonds edge higher….lets face it, they aint goin much lower…..30 year fixed will edge higher. Ever stricter lending standards will glue more fence sitters to the fence. The current glut of bank owned inventory continues to grow every month. In March 300ish sold and 1000ish added….looking at NODs this number will only grow and grow and grow.

The math isnt far off from banks owning 1 full year of inventory (15k homes) on top of private sales. Sure, they dont own it yet….but we’re looking at adding 700+ homes to bank owned inventory every month, and that number is accelerating. If banks add 1500 homes/mo, interest rates rise, and sales fall by another 15-20%….presto. Heck, it doesnt even have to make it to 1 year of inventory…as Gary would say 6 months is ‘in the bag’.

This first 20% drop has been fun to watch……if the perfect storm hits in the form of job loss + higher interest rates coupled with the inevitable bank owned real estate…..wowsa!!! buckle up…..

Jasper

Spot on.

A different way to say the same thing is that fixed rate mortages, along with bonds, track inflation expectations and the opportunity cost of the same investment.

Since everything looks bad right now, the opportunity cost of bonds is low. Since inflation is (reportedly) low, bonds are cheap.

Yep. When bonds edge higher….lets face it, they aint goin much lower…..30 year fixed will edge higher. Ever stricter lending standards will glue more fence sitters to the fence. The current glut of bank owned inventory continues to grow every month. In March 300ish sold and 1000ish added….looking at NODs this number will only grow and grow and grow.

The math isnt far off from banks owning 1 full year of inventory (15k homes) on top of private sales. Sure, they dont own it yet….but we’re looking at adding 700+ homes to bank owned inventory every month, and that number is accelerating. If banks add 1500 homes/mo, interest rates rise, and sales fall by another 15-20%….presto. Heck, it doesnt even have to make it to 1 year of inventory…as Gary would say 6 months is ‘in the bag’.

This first 20% drop has been fun to watch……if the perfect storm hits in the form of job loss + higher interest rates coupled with the inevitable bank owned real estate…..wowsa!!! buckle up…..

Jasper

Spot on.

A different way to say the same thing is that fixed rate mortages, along with bonds, track inflation expectations and the opportunity cost of the same investment.

Since everything looks bad right now, the opportunity cost of bonds is low. Since inflation is (reportedly) low, bonds are cheap.

Yep. When bonds edge higher….lets face it, they aint goin much lower…..30 year fixed will edge higher. Ever stricter lending standards will glue more fence sitters to the fence. The current glut of bank owned inventory continues to grow every month. In March 300ish sold and 1000ish added….looking at NODs this number will only grow and grow and grow.

The math isnt far off from banks owning 1 full year of inventory (15k homes) on top of private sales. Sure, they dont own it yet….but we’re looking at adding 700+ homes to bank owned inventory every month, and that number is accelerating. If banks add 1500 homes/mo, interest rates rise, and sales fall by another 15-20%….presto. Heck, it doesnt even have to make it to 1 year of inventory…as Gary would say 6 months is ‘in the bag’.

This first 20% drop has been fun to watch……if the perfect storm hits in the form of job loss + higher interest rates coupled with the inevitable bank owned real estate…..wowsa!!! buckle up…..

Jasper

The bottom will only occur after the solvent banks begin lending to each other again and the insolvent banks either go away or bring out their dead and mark to market.

Basically, when the credit crunch is done, and sane lending standards have truly returned, then the bottom will be in sight. Prior to that, forget it. The problem for a lot of people including some of those in this forum, don’t want to admit what that really means…and that is over correction of home prices in SoCal. I will happen…I had my doubts a year ago, but now it is pretty clear that nothing can stop it.

The bottom will only occur after the solvent banks begin lending to each other again and the insolvent banks either go away or bring out their dead and mark to market.

Basically, when the credit crunch is done, and sane lending standards have truly returned, then the bottom will be in sight. Prior to that, forget it. The problem for a lot of people including some of those in this forum, don’t want to admit what that really means…and that is over correction of home prices in SoCal. I will happen…I had my doubts a year ago, but now it is pretty clear that nothing can stop it.